Defined Benefits Plans
Highland is a recognized leader in defined benefit pension plan consulting. For example, when the Pension Protection Act of 2006 was signed into law on August 17, 2006, within months, we had built our own pension simulator which accounted for the various new rules, such as the calculation of minimum contributions. We modeled each of our clients’ pensions in the context of the new law and their own financial statements. The implications of this exercise led many clients to reorient their investment strategies relative to liabilities. Today, more than ten years later, that exercise has become an industry best practice.
Results Oriented and Cost Conscious
Pension investing is multifaceted, requiring the management of liabilities relative to assets, risk-stakeholder communications and continual monitoring of industry and regulatory developments. As Investor Advocates®, we help establish a framework to assess net investment performance in the context of fees, expenses and opportunity costs for a client’s investment program. Our pension consultants help navigate confusion and noise in the marketplace to help you achieve success.
We Work Proactively to Keep You Ahead
We continue to maintain a thought leadership position. In 2012, the U.S. Senate contemplated a bill primarily to fund highways. Embedded in that bill were specific pension provisions that altered how minimum contributions would be calculated. For several reasons, we believed the bill would become law. We introduced the likely implications to clients and updated our models even before the bill had become law.
As an acknowledged plan fiduciary, Highland works with clients to make better and more informed decisions regarding their defined benefit plans. We emphasize a highly collaborative, proactive approach that involves the plan’s actuary and key client decision-makers.
Pension plan decision-making requires a comprehensive understanding of a client’s unique circumstances and key risks. These risks often include contribution and funding volatility and benefit payment security. Highland works with clients to optimize their investment portfolio relative to their various risks.
Liability Modeling Expertise
Highland has developed a proprietary modeling solution that allows us to conduct comprehensive asset/liability reviews for each of our defined benefit clients. This modeling capability allows Highland to estimate a pension plan’s impact on income statements, balance sheets, cash flows and executive compensation rules. These proprietary tools and risk measures allow us to develop highly customized, strategic solutions for each of our pension clients.
Our proprietary pension model is regularly updated as new legislation is passed or legal interpretations change. Since passage of the Pension Protection Act of 2006, numerous changes have impacted pension risk management best practices. The Worker, Retiree and Employer Recovery Act of 2008 adjusted many rules surrounding pension plans, and we incorporated those changes immediately. Senate Bill 1813 passed into law as The Moving Ahead for Progress in the 21st Century Act (MAP-21) in 2012. Many of the provisions impacting pension plans in MAP-21 have been subsequently extended.
Pension risk management is an evolving process that is highly sensitive to regulatory change. Our services ensure clients stay up to date in their awareness of regulation and how it is likely to impact their broader enterprises.
Risk Management and Monitoring
Highland provides each of its pension clients with an asset/liability analysis based on a detailed review of the client’s financial statements and actuarial data. Clients receive regular estimates of funding status changes and attribution of portfolio performance relative to liabilities.
Different regulatory regimes prescribe competing methods of measuring pension liabilities. For example, the measurement method to determine required cash flow contributions differs from that used for statement earnings. Another complexity to manage is the challenge in replicating those liability measurements with investable assets. Highland assists each of our clients with understanding various tradeoffs in liability hedging approaches and we help clients craft investment portfolios that are suited to best meet their specific risk management goals.
Pension plans present unique communication challenges to sponsors. Plans’ governing rules are complex and technical. Understanding them can challenge even the most astute investors. Highland regularly helps clients communicate pension issues with broader committees, boards or other stakeholders.
We provide research, education, and information to equip our clients to make informed and effective decisions. This includes regular written presentations on investments and market commentaries, and additional information requested by our clients. Highland provides its clients with a variety of topical investment-related educational materials as part of our ongoing retainer services.
Service Provider and Manager Searches
Continuous, proactive research ensures that Highland is in contact with the best investment managers in the marketplace. Our dedicated research group conducts in-depth, regular reviews of every investment manager used by our clients. In addition, this group evaluates all other best-in-class investment managers that may be available to our clients. Our goal is to assist each of our clients in engaging top investment management talent at the lowest possible expense.
Periodically, clients need to review or select service providers such as custodians, trustees, actuaries or other providers. Highland has a lengthy institutional memory and ongoing contact with most of the leading actuarial firms and other service providers, all of which allows us to provide real-time insight as to service levels, responsiveness and fees being charged in the marketplace. Service provider searches, as well as monitoring of all service provider fees, are included in our ongoing retainer.